Can the world afford rising levels of inequality?

Saturday, 26 January 2013 10:20

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By Lynda Williamson

In these days of austerity and stagnation many people might be surprised to learn that there is one area of the economy that has enjoyed double digit growth in every year since the banking crisis hit.

The demand for luxury goods has never been greater; it seems that the world’s billionaires just can’t get enough champagne, caviar, luxury yachts and sports cars.

In 2012 the world’s 100 richest billionaires had a net income of 240 billion dollars, enough to eradicate global poverty four times over, prompting Jeremy Hobbs, Executive Director of Oxfam International to say “We can no longer pretend that the creation of wealth for a few will inevitably benefit the many – too often the reverse is true.  Concentration of resources in the hands of the top one per cent depresses economic activity and makes life harder for everyone else – particularly those at the bottom of the economic ladder.”

It would seem then, that rather than starting up new businesses which provide jobs and prosperity to the masses, those strivers whom we count upon to produce the trickle-down effect have been splashing out on luxury playthings and stashing the change in offshore bank accounts (with some worthy and notable exceptions).  Perhaps it’s time to admit that the trickle down theorists forgot to take human nature into account.

Many of those who do start up profitable businesses and indeed list very healthy profits, rely on the tax payer to top up the wages of their poorly paid workforce in the form of welfare payments.  It seems a strange notion that the tax payer should subsidise profitable business at this time when we are having a debate around the undeserving poor and cutting payments to the sick and elderly.

Should businesses which post a profit pay their workforce a wage which they are able to live on without recourse to welfare?  Of course they should, there should be no such thing as ‘working poverty’ in today’s Scotland.

In the UK, the average total pay for executives of blue chip companies is £4 million. This puts the UK’s top executives amongst the highest paid in the world, higher even than in the USA.  Despite this we are constantly told that if we do not offer the highest wages, then the most talented people will move elsewhere. One has to wonder to where exactly.

In Germany, for instance, the gap between rich and poor is half what it is in the UK but they don’t seem to be struggling unduly with lack of talent.  Most disturbing is the fact that these soaring rates of pay don’t seem to have any basis in merit.

Many political commentators believe that we cannot afford to tackle the problem of inequality at this time of crisis when we are reliant on economic growth to lift our stagnant economies.  Much of our attention of late, has instead been focussed on eradicating poverty.

The case for tackling poverty is well known and has been well established for many years.  It has been widely accepted that we must encourage business in order to generate wealth to enable us to do something about poverty. 

I would argue that poverty and extreme wealth are different sides of the same coin, they are interlinked, you cannot solve one without tackling the other.  Increasingly now, we are realising that we cannot afford not to tackle the problem of wealth inequality as it is actually harmful to economic growth.  Put simply, there is a limit to how much money one person can spend.  Spread that money around and much more of it will find its way into the economy.  More equal countries are seen to be more successful in tackling poverty.

Extreme wealth also has a corrosive effect on social mobility with poor people who live in unequal societies far more likely to stay poor.  As Richard Wilkinson, co-author of “The Spirit Level” said “The American dream is more real in Sweden than it has ever been in the States.” 

People in the richer brackets have less of a stake in public services. When you use private health care and send your children to private schools where is the incentive to ensure that public services are properly funded and properly run?  Couple this with the fact that these wealthier people are far more likely to be in positions of power or to gain political office or influence and the danger of a detrimental effect on democracy is all too obvious.  Around 70% of the MPs who sit in the House of Commons are millionaires compared with less than 1% of the general population.  The UK Conservative Party receives over half of its donations from the financial services industry.

Inequality also throws up environmental concerns.  It is estimated that those in the richest 1%  in the United States generate as much as 10,000 times more carbon than the average US citizen.  Increasing pressure on resources like land and water mean that we can no longer sustain a situation where the majority of the world’s assets are monopolised by the few.  As Gandhi so eloquently put it “Earth provides enough to satisfy every man’s needs, but not every man’s greed.”

In Scotland we have an opportunity to choose the kind of country that we want to live in.  I hope it will be a country of social justice, of economic justice and of peace. Tackling inequality will be crucial to achieving these goals.

Inequality has been shown to affect mental health, physical health, life expectancy, levels of drug and alcohol abuse, crime levels, rates of teenage pregnancy and rates of stress related illness.  The list goes on and is even more startling when you realise that inequality is bad for the rich as well as the poor.

Richer people who live in more equal societies are happier and healthier than their counterparts in unequal societies.  In its report ‘The cost of inequality: how wealth and income extremes hurt us all’, Oxfam calls for a return to income inequality levels of 1990 by 2025.

Wouldn’t it be great if an independent Scotland could lead the way in achieving that goal?